Mortgage Protection Save £500+ a year on insurance

Many homeowners' worst fear is missed payments, and ultimately repossession, which is why MPPI, an insurance policy against this, is so popular. Yet many people pay massively over the odds. This is a guide to the cheapest MPPI policies, which could save you £500-plus a year, and how to decide whether it's worth it.

• What is MPPI?
• Should I get protection?
• How to choose MPPI
• The Top MPPI Providers
• The Size of the Saving
• Related Articles/Discuss
• For more insurance guides or help

Safe as houses?

This is a guide to mortgage insurance. Do also check what state help is available in the Mortgage Arrears Help guide.

What is MPPI?

Mortgage payment protection insurance (MPPI) promises to make repayments on your mortgage (and other related expenditure like buildings insurance), in the event of accident, sickness or unemployment hitting your income.

There is no legal requirement to have MPPI, yet it's a profitable policy for lenders, and easy to sell. The emotional hit of "peace of mind" and "lose your home" within the same sentence often leads borrowers to fall for the sales patter without checking policies' suitability.

This leaves many paying far more than necessary, and a few saddled with a policy useless to them. If you think your policy may have been mis-sold, and doesn’t provide appropriate cover, read the PPI Reclaiming Guide.

However, the fact MPPI is profitable for lenders doesn’t make it a bad product. For many, it's very worthwhile. Yet before signing up to any policy, check the terms are suitable.

Won’t the Government cover me?

As the economy has creaked, the Government has introduced schemes aimed at alleviating pressure on struggling households.

Whether you are eligible depends on your personal circumstances, such as the size of your mortgage or savings. Plus which help you get will hinge on whether repossession is imminent, or you’re simply struggling a bit to cover costs.

However, none of these offer the same level of protection as a good MPPI policy.

The most the government will pay is your interest.
MPPI covers your full repayment and associated costs.

However it's worth exploring what state help is available to you if you get stuck in arrears. If you get an MPPI policy, it may be you only need one to fill the gaps in the public schemes. So read the Mortgage Arrears Help guide first.

Should I get protection?

These are unpredictable times. Job losses are commonplace. Huge, seemingly-sturdy businesses like RBS needed massive injections of government cash, and household names like Woolworths have gone belly-up. The only predictable thing is unpredictability.

It’s crucial to assess your continuing ability to meet vital bills. If you're worried about your financial stability, taking out MPPI will mean at least your mortgage keeps getting paid.

Yet there’s a variety of instances when MPPI isn’t the right path. Most policies only pay out for up to a year, so if you could cover repayments for that time anyway, it may not be worth it. Use this checklist:

• Would you get redundancy?
  
  In the event of unemployment, if you'd get a big payout for long service, the unemployment element of the cover is often unnecessary. However, you may want to look at just getting accident and sickness cover.
  
  Yet even those whose contracts would entitle them to a big payout need to be aware that, in the extreme circumstances of your company going bust, statutory redundancy isn’t that generous.

  An insurance payout could also affect your right to claim income-related benefits. Check if your policy will pay your lender directly. If not, still apply for benefits, as the Goverment will pay your national insurance contributions, which can have an impact on your eventual state pension.

  In the current economic climate, it’s sensible for everyone to take a moment to think how they’d be impacted by redundancy; and to put a contingency plan in place if possible. See the full Redundancy Guide for hints and tips.

• Do you get decent sick pay?
  
  If an accident or sickness stopped you working, what would your firm do? Many public sector workers get a substantial proportion of their salary. If you've got good sick pay terms, the accident and sickness element is probably unnecessary. Some policies will cover you solely for unemployment, and are cheaper for that.

• Are you self-employed?
  
  Most, but not all policies now cover the self-employed, though only if the business ceases to trade due to circumstances beyond your control – always check how your work scenario would be covered.

• Got sufficient savings?
  
  MPPI usually only lasts a year, meaning the maximum payout is 12 times your repayments. If you can cover this from your savings anyway, there's really little need to throw money at a policy.

• Already covered?
  
  Many other policies cover similar circumstances; the most common is permanent health insurance which pays out a proportion of your salary if illness prevents work. It is more expensive, but it pays for longer and can be used in conjunction with unemployment-only MPPI.
  
  It may also be the case that your work provides you with some form of cover, so do check.

• Already having payment problems?
  
  If you are already in arrears with your mortgage, or have taken a hit on your income, it’s unlikely you’ll be able to insure yourself. Here, Government schemes have been put in place to help you through the sticky patch. But not everyone qualifies, plus they end up more expensive in the long run. Read the Mortgage Arrears Help guide to see if you qualify.

• Foreseeability of redundancy?
  
  If there is a realistic ‘foreseeability of redundancy’ when you take out the policy, it could be deemed invalid. This certainly applies if you’ve been told your specific job is being considered for redundancy; depending on circumstances it may apply if you’ve been told some jobs in your firm may be going, or even if you work for a company reported to be in trouble.
  

What if my insurer goes bust?

The economic times we live in mean you never know which companies may be the next to have problems. Fortunately, PPI providers are covered by the Government-backed Financial Services Compensation Scheme, meaning if they go into default, you’re protected.

The main way this happens is the FSCS will try and find another provider to take over your policy, or issue a substitute policy. However, if you have any ongoing claims, or need to make a claim before a new insurer is found, the FSCS should ensure these are covered. For full details, read the Insurance section of the Savings Safety guide.

How to choose an MPPI policy

Surprisingly, standard MPPI policies' prices don't depend on many factors that increase the likelihood of a claim. So a vitamin-popping yoga guru pays the same as a chain-smoking professional wing-walker.

Yet policies do vary, so check it meets your specific requirements, including:

• When will it pay out?
  
  Policies normally start paying out 30 or 60 days after the problem occurs, yet most are ‘back to day one', which means they backdate the benefit so you'll be paid out for the earlier period too.
  
  This way, they don’t have to provide cover if you’re only out of work for a couple of weeks.

• Policy periods are limited.
  
  Most only pay out for a limited term, usually 12 months. However a new breed have emerged which are much cheaper as they only cover you for three months; this is very useful as for many people, state help will kick in after that. See the Mortgage Arrears Help guide.

• There's a maximum payout level.
  
  Many policies limit the monthly payments covered, often £1,500 or £2,000 per month. Those with bigger mortgages may find this a problem, especially if interest rates rise.

• Warning! Switching isn't always good.
  
  Switching can often save you a fortune, if it simply means cancelling your existing cover and getting a new, cheaper policy.
  
  Yet many policies operate initial exclusions preventing claims within the first three to six months, and some don't pay out to anyone with pre-existing medical conditions or a ‘foreseeability' of redundancy when it's taken out.
  
  In current climes, this is a serious point. If the insurer could argue that you knew you may have been about to lose your job when you switched to it, then it’s possible you’ll be left uninsured. In which case, if you want cover, you may be best sticking with what you’ve got.

Don't get the message from this that MPPI is always bad. Done correctly, it's a cheap way to protect yourself, ensuring you can continue to make mortgage repayments. Just make sure you know what you need.

Should I get advice?

MPPI isn’t a simple policy, and while those detailed below are much cheaper than standard policies, it’s still important you check that you’re appropriately covered.

If you feel uncomfortable doing that, and you’re confident you want a policy, then be safe, not sorry. If you want advice, don’t get it from your bank or lender, it’ll usually just try to flog you its own expensive policy. Far better to go to an independent mortgage broker or IFA, who will be able to guide you through the process. See the Financial Advice guide for more info and details.

Of course this will probably mean you end up paying more, either through a fee or commission, as the IFA needs to make a living. Yet it should still be competitive compared to lenders' policies; and better that than you buying a dud.

The UK’s top MPPI providers

The most expensive way to buy MPPI is likely to be with your mortgage lender. They’ve never been competitive on price; that’s the domain of specialist MPPI providers.

During 2009, some providers increased rates on existing policies, so the City regulator, the then FSA (now the Financial Conduct Authority), stepped in and ordered automatic refunds of price hikes - though come January 2010 existing policies can be cancelled and restarted at a new, higher price, when you should check for the new cheapest and switch (read the MSE News: FSA orders automatic MPPI payback).

The following are the cheapest 30-day payout, back to day one policies, for full ASU (if you're looking for just unemployment or just accident and sickness, these are still the winners). The cheapest depends on your age:

• Cheapest for under-50s
  
  The cheapest we've seen is from a big player in the market, Paymentcare. Its age-banded policy, JustClick4Cover, comes out top, with premiums ranging from £1.95/month per £100 cover for 18-25 year olds, up to £4.75/month for 46-50 year olds.
  
  When getting a quote, set the excess period to 0 days, in order to get back to day one cover.
  
  An alternative is small company iProtect. Its prices range from £2.13/month per £100 cover for 18-25 year olds, up to £3.84/month for 41-45 year-olds, though the cost does rocket for anyone older.
  
  The underwriters used by iProtect are based in the Republic of Ireland, yet the whole company is UK-registered and crucially signed up to the UK FSCS, meaning you're protected (see details above).
  
  Also, if you want unemployment-only cover, setting a high excess on the accident and sickness elements (eg, 180 days) will effectively get you the cheapest unemployment-only policy available.
  
  
  
• Cheapest for over-50s
  
  If you’re between 50 and state retirement age (60 for women, 65 for men), the cheapest bet is Paymentcare's* flat rate policy, which charges everyone £4.85/month per £100 of cover.
  
  If you want a specific unemployment-only policy, British Insurance* is the only big standalone provider to offer one, though it is more expensive than many full ASU policies.
  
  
• Want a bespoke policy?
  
  MoneySupermarket* has an MPPI comparison tool which is useful for those with specific requirements. However, it can miss some of the very cheapest providers because it doesn't have commercial relationships with them, so always try the providers listed above first.